Impact on Student-Athletes and Schools – Intuit TurboTax Blog

Arkansas has made a strategic move by becoming the first state to exempt NIL (Name, Image, and Likeness) earnings from state income tax, effective retroactively to January 1, 2025. This landmark decision, finalized by Governor Sarah Huckabee Sanders on April 25, 2025 reshapes the financial landscape for student-athletes and schools alike. 

Key Takeaways

Arkansas becomes the first state to exempt NIL dollars from state income tax, effective for earnings as of January 1, 2025, thanks to a new bill signed into law by Governor Sanders.

The bill amends the Arkansas Student-Athlete Publicity Rights Act, which exempts student-athletes from paying state income tax on their NIL earnings.

This move is expected to make Arkansas more attractive to top talent and boost the state’s economy, with other states likely to follow suit.

While NIL dollars are now tax-exempt at the state level in Arkansas, student-athletes still need to report this income on their federal tax returns. 

Arkansas Paves the Way for NIL Tax Exemptions

In a significant victory for student-athletes, Arkansas has become the first state to exempt NIL (Name, Image, and Likeness) earnings from state income tax, effective for earnings as of January 1, 2025. Governor Sarah Huckabee Sanders signed the bill into law on April 25, 2025, making it a transformative moment for college athletics.

The newly signed law amends the Arkansas Student-Athlete Publicity Rights Act, was filed in the Arkansas House of Representatives on March 31, and passed both the House and Senate on April 14. Under the new law, funds related to NIL or revenue-sharing directly from a university will be exempt from state income tax in Arkansas. This policy not only provides financial benefits for student-athletes but also strategically positions Arkansas as an attractive destination for top talent to compete with other states like Florida and Texas that already do not collect a state income tax.

A Win-Win for Student-Athletes and Schools

The new law in Arkansas is a significant victory for student-athletes, as it allows them to retain more of their earnings from NIL deals and revenue-sharing directly from their universities. These funds will now be exempt from Arkansas state income tax, which is up to 3.9%. Additionally, the financial details of these payments will remain confidential and are not subject to the Freedom of Information Act.

The bill’s passage also benefits schools in the state, allowing them to directly pay athletes through NIL, which aligns with the proposed House v. NCAA settlement. However, it’s essential to note that the NCAA still needs to finalize the settlement, and there may be potential roadblocks ahead.

Tax Implications for Student-Athletes

While the new law is a significant victory for student-athletes in Arkansas, it’s essential to remember that they still need to report their NIL earnings on their federal tax returns. 

Student-athletes will still need to report this income on their federal tax returns (typically a Form 1040) and pay federal income tax on their NIL earnings. Student-athletes need to file a federal tax return with the IRS if they made at least $400 in NIL self-employment activities (to report your self-employment tax) or if their total income is more than the standard deduction for that year ($15,000 for a single filer in 2025).

Arkansas’ decision to exempt NIL earnings from state income tax places it at the forefront of a potentially widespread policy shift. This move aims not only to benefit student-athletes financially but also to boost the state’s economy by making Arkansas a more appealing choice for prospective talented athletes. As this policy unfolds, it will be interesting to observe if other states follow suit, potentially changing the college recruiting landscape significantly across the nation.